Since the apex of the GameStop saga, Robinhood has acknowledged its capital issues, raised $3.4 billion, and its co-CEO Vlad Tenev has called for the end of T+2 settlement.<\/p>\n
As defined by Wikipedia, T+2 settlement is “a shorthand for trade date plus two days indicating when securities transactions must be settled.”<\/p>\n
Analyzing the flaws of traditional finance presents a massive growth opportunity for DEXs like Uniswap and 0x.<\/p>\n
On their blog, Under the Hood<\/span><\/em>, Robinhood explained<\/a> the cause for its \u201ctemporary restrictions\u201d as related to clearinghouse requirements. More specifically, Robinhood says that during the week as GameStop trades grew, \u201c[their] clearinghouse-mandated deposit requirements related to equities increased ten-fold\u201d.<\/p>\n This echoes the second theory I covered in an article<\/span> about Robinhood\u2019s flaws amidst WallStreetBets\u2019 short squeeze<\/a>.<\/p>\n This led to a sudden venture capital raise of $3.4 billion from their existing investors led by Ribbit Capital and with a16z and Sequoia among others participating. Robinhood CFO Jason Warnick noted:<\/p>\n \u201cThis round of funding will help [Robinhood] scale to meet the incredible growth we\u2019ve seen and demand for our platform. We are humbled by our customers\u2019 response to our offering, and remain inspired by everyday people taking control of their financial futures.”<\/p>\n<\/blockquote>\n Although this raised questions about an upcoming IPO, it seems that Robinhood is forging ahead. Some believe that they might go public via a direct listing or SPAC though. However, this raise didn\u2019t end their fight against what made them stop trading; co-CEO Vlad Tenev has been vocal about ending the traditional model of T+2 settlement.<\/p>\n In financial markets, settlement is the idea that a trade is complete.<\/p>\n For example, if a Robinhood trader was to buy a GameStop stock, the trade would be considered \u201csettled\u201d once the trader had received the stock and the seller had received the money used to buy the stock.<\/p>\n A T+2 system means that when you buy a stock, you do not necessarily own the stock until the end of the two-day period. This adds complexity and risk to the system. For Robinhood, if a buyer cannot pay for the stock in the two-day period or the seller cannot deliver the stock over the two-day period, this could cause a significant problem.<\/p>\n Robinhood works with a clearinghouse which in this case is the DTCC (Depository Trust and Clearing Corporation<\/span>), the clearinghouse used by U.S. financial markets.<\/p>\n The DTCC requires Robinhood to post a deposit on their overall net buys\/sells to help mitigate the risk. The amount that needs to be deposited is calculated by a moderately complex algorithm, but the overall idea is that high frequencies of trades particularly in one stock such as GameStop leads to rapidly increasing clearinghouse deposit requirements.<\/p>\n Robinhood and other brokerages began to have trouble paying for these deposits as these trades continued and thus had to halt the trades.<\/p>\n This is what led to Robinhood co-founder and co-CEO Vlad Tenev to call for an end to T+2 in the following thread.<\/p>\n It\u2019s time for T+2 to go. (1\/9)<\/p>\n — VLAD (@vladtenev) February 2, 2021<\/a><\/p><\/blockquote>\n\n
Robinhood co-founder calls out T+2 settlement<\/b><\/h2>\n
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